Tariffs and turmoil

Volatility – either in price or product supply – is a fundamental characteristic of food production. But the current plethora of global and local volatility factors, from tariffs to war to food inflation, all against a backdrop of attempts to define ‘sustainable food’ production, means the global food sector has rarely experienced a more challenging time. 

In terms of food inflation, it is hard to see the imposition of US tariffs at 15 per cent across a range of foodstuffs, including Irish butter, as being anything but inflationary. Ultimately, the American consumer will bear some share, at least, of the tariff imposition. This realism-based sense of how an effective tax on imports will lead to higher prices contrasts with the nonsense we heard about food inflation in Ireland last month from both the Irish competition authority and The Irish Times that food inflation in Ireland is all about increased farmer margins. The flawed economic analysis reflects ‘the comfort of prejudice without any of the discomfort of thought’ to paraphrase John F Kennedy, and is very much the conclusion of a D4-minded newspaper with no agricultural correspondent and a minimal understanding of real-world economics. 

The devilish detail
In terms of the Trump tariff outcomes, there are still some key details to be announced in terms of exemption of ‘certain agricultural products’ which, unfortunately, is unlikely to include Irish butter. It is likely that the standard/single 15 per cent tariff rate for EU exports will apply to Irish butter exports to the US. Despite defensive statements from EU president, Ursula von der Leyen on behalf of the Commission, that the 15 per cent rate ‘is a clear ceiling with no stacking and provides much needed clarity for business’ a 15 per cent tariff is a significant cost. And that has to be reflected either in the price of Irish butter and other products in the US or through a cut in margin on behalf of the Irish exporters, butter processors and primary milk producers. 

Bringing production back to the US

The intent from the US perspective behind the introduction of tariffs, we are told, is both to ‘equalise’ alleged tariffs on US products exported to the EU and, more broadly, to favour increased production/import substitution in the US across a broad range from cars to pharma products to food. Beyond the politics and the posturing the most likely outcome has to be increased prices in the US, with the question of how much of the 15 per cent tariff is absorbed versus passed on immediately being a matter of negotiation. In the short term, the timing of any inflationary impact is dependent on how much product will have gotten through US customs before the first tariffs were imposed at 10 per cent in April. Increases in Irish whiskey and butter exports to the US in the first quarter of 2025 are an example of this targeted front-loading of exports to avoid any immediate impact of increased tariff impositions. The true reality here is that while the increased tariffs will act as a disincentive to import butter from Ireland or wine from France, they will not and cannot mean that grass-fed Irish butter or French wine will now be made in the US. So unlike some of the other tariff categories like automobiles or IT or even pharma, the most likely outcome for American consumers is a significant increase in US food price inflation, which has been relatively high anyway over the last two to three years. 

More instability

This conundrum around inflationary impacts is behind yet another Trumpian battle – his row with the US Federal Reserve over interest rates. The normal response to increased inflation is for interest rates to be increased to cool the economy. The Trump administration is, however, in denial about any inflationary impact and wants US rates to come down. A wrong move here whereby a new head of the US Fed cuts rates against an inflationary surge could mean a significant move out of US bonds or a fall in the value of the dollar, or both. Any further fall in the value of the US dollar against the Euro will make EU products even dearer in the US, adding to the whole inflationary volatility mix. Already in 2025, in response to the chaos caused by the US tariff regime, the Euro has increased in value from $1.02 in January to $1.16/17, currently, and is forecast by US banks to reach $1.25 by January 2026. The concern here for the Irish agri sector is not just the increasing challenge of US tariffs but the possible decline in the return on global food exports which are dollar denominated. 

The rise of protectionism

Beyond speculation as to where this new, unstructured, non-rules-based approach to trade ends, the key question, I would suggest, is what actions will the EU take to protect its own interests, including agriculture and food production. This may not and should not necessarily be manifested in terms of retaliatory tariffs which might only cause further escalation in response, but more specifically, perhaps, in terms of a considered rethink as to what stabilisation supports might best protect EU interests in this period of volatility. Certainly, in view of the changed trading circumstances caused by the Trump tariff impositions, the key tenets of the EU Green Deal of 2020 are very much out of date and the next Common Agricultural Policy and EU trade policy generally, need to be more flexible to be effective in an ever more volatile global economy.